Finance minister P Chidambaram said on Saturday the country’s economic growth had declined to 5.5% in the first quarter and is likely to remain at 5.5% in the second quarter too. “When our growth declined to 5.5% in the first quarter of this financial year, and when growth is likely to be around 5.5% in the second quarter of this financial year, it goes without saying that we face a difficult situation,” Chidambaram told reporters on the sidelines of bankers’ conference Bancon 2012. The Central Statistical Organisation is scheduled to release GDP figures for the second quarter on November 30.

Chidambaram said that to overcome the difficult economic situation, there is a need to find innovative ways to increase the output of goods and services, adding that finding new ways to help the poor depends on high economic growth, both for jobs and income.

The finance minister called upon banks to play an active role in reviving the economy. “I believe banks represent the heart of the financial system and they will drive the revival of India’s economy,” he added.

Speaking at the event, the finance minister said consolidation of the banking sector was inevitable. “We should not fear consolidation. There is a need to create two to three world-size banks and for this there is a need for some consolidation in India. While there is space for local banks, some may have to let go their identities.” While he did not have a roadmap for consolidation, the FM said the impetus for this would have to come from the bank and their boards.

The FM said the government would launch its ambitious project of using the banking system for cash transfers to citizens on January 1. On Monday, the Prime Minister is holding a meeting of the cash transfer committee, Chidambaram said. To start with, 51 districts across 16 states will be covered under this direct cash transfer through Aadhar-based systems. “We wish to transfer all cash payments directly to beneficiaries through Aadhar-enabled accounts. We have only five weeks to begin rollout. We want to roll out in all the 61 districts by end of 2013,” the FM said.

Chidambaram hoped the banking system would make this project a success and the government will now know exactly how funds are transferred till the last paisa. The cash transfers could begin with